Styrene

The year 2000 saw extremes in styrene balance and pricing, say CMAI styrenics directors Alex Lidback (North America), Vince Sinclair (Asia), and John Bonarius (Europe) and authors of the 2001 World Styrene Analysis.

Peaking in the first quarter of 2000, the styrene industry enjoyed a miniboom. Market conditions reverted to more typical conditions later in the year as industry participants wondered whether the market boom was over or ready to return. Despite weak market conditions in early 2001 as a result of global derivative inventory depletion and a slower US economy, CMAI sees a clear tightening trend in its forecast balances and believes the current market correction is temporary. CMAI estimates total demand rose 4.5%, to almost 21 million tons in 2000, from 20 million tons at the end of 1999. This compares with average annual growth of 5.3% during 1995-1999.

Capacity grew even less. After several years of steady capacity growth with poor investment returns, producers finally put a clamp on new additions. CMAI expects no new capacity additions until the second half of 2002.

Continued demand growth for derivatives drive operating rates to an average of 97% in 2002. Normal maintenance schedules will take out some capacity, driving utilization above 100% for short periods of time.

Beyond 2003, a wave of new capacity expansions will add more styrene than the global market can consume, driving operating rates back down by the end of the forecast period.

CMAI thinks it probable that rising margins could induce producers to add more capacity by the end of the forecast period than they have officially announced. It sees relatively strong earnings for the next two years, followed by a period of much lower earnings as the market searches for a new point of equilibrium.

One key consideration in this scenario is the shift of West Europe to a net exporter. This will dampen price peaks, which in the past have been catalyzed by West European purchases of spot material.

CMAI expects West Europe to become a net exporter, moderating price spikes that occur when operating rates rise.
Over the longer term, CMAI expects prevailing regional imbalances even out. Rising derivative capacity will offset styrene monomer surpluses. Similarly, regions with styrene deficits, notably Asia and especially China, will also expand styrene capacity. The world, as especially Asia, needs new capacity if demand growth is to continue, says CMAI. The question is, who is going to build it?

Polystyrene/EPS

CMAI's 2001 World Polystyrene/EPS analysis also sees an optimistic outlook for both polystyrene and expandable EPS polystyrene (EPS), though growth will slow from its torrid pace since the last four years.

Polystyrene

Polystyrene grew at a 1.8 times gross domestic product (GDP) during 1995-99. CMAI expects weak conditions in mature US and West European markets in late 2000 to drag this ratio down to about 1.3 times GDP. The resin is very mature and costs more than competing polypropylene and high-density polyethylene (HDPE), which are growing at faster rates.
Excessive capacity additions, leading to major rationalization and restructuring between late 1997 and 1999, have caused producer margins to erode to intolerable levels, says CMAI. Yet the number of merger and acquisition opportunities are diminishing. This should result in fewer changes, especially if market conditions improve as projected. Fewer players facilitate more market discipline, enabling the remaining producers to raise margins. CMAI also notes that major capacity additions are behind schedule. This should limit supply and eventually drive up prices.
As has been the case for several years, China remains the key to polystyrene market growth, accounting for half the world's polystyrene trade.
/p>

EPS

EPS is the most dynamic styrene derivative. It grew 2.3 times faster than GDP growth during 1995-1999. While it will continue to outpace the economy, CMAI expects it to rise only 1.5 times as fast through 2005.
CMAI estimates that EPS demand rose just under 5%/yr, to 2.9 million tons, in 2000. It projects it to rise 5.2%, i.e. to 3.7 million tons, during 1999-2005.
In Northeast Asia, it will rise more than 7% annually. This is largely due to strong growth in China. China represents nearly 60% of Northeast Asian demand and more than 20% of world demand, and these figures are rising.
Like polystyrene, EPS demand will grow faster than capacity additions. Between 1999 and 2005, the industry will add less capacity than demand during three years, suggesting a rather quick tightening of supply/demand balances. CMAI expects more capacity additions to be announced toward the end of the forecast period, keeping operating rates at more typical levels.
CMAI's 2001 World Styrene Analysis and 2001 World Polystyrene/EPS Analysis are available in book or CD-ROM format. Both studies include technology analysis, trade, and price forecasts, as well as discussions of other issues influencing the styrene and polystyrene/EPS industries.